What does it mean to be “out of contract” in a home sale?

Is your indecision putting you out of contract? Worried looking woman with laptop computer.Every region of the country has some unique real estate vocabulary and phrases.  Here, in Silicon Valley, when we say “you’re out of contract“, it’s another way of saying “you are not doing what you promised to do in the purchase agreement that you signed” (meaning the real estate contract).  In other words, there is a seller or buyer default happening.

“Out of contract” is not a legal term. I remember hearing a local real estate educator say “there’s no such thing”. It’s not an official status. But it is a way of describing behavior that’s not in alignment with the contract’s express promises.

Contractual “Save the Dates”

Both sellers and buyers make promises to do certain things and most of these promises are tied to time frames or dates.  Here are a few of these time-sensitive promises or contractual obligations:

  • sellers agree to leave the utilities on until close of escrow
  • sellers promise to maintain the home until close of escrow as it was on the day the property went into contract (so mow the lawn, water it etc.)
  • buyers assert that they will get their initial deposit to title within a set number of days (the California Association of Realtor’s form states 3 business days or provides a blank to fill in an alternate number – it’s often 1 business day here)
  • buyers promise to remove contingencies within the times they stipulated in the offer
  • sellers will move out in according to the date set out in the contract
  • indecision over material facts or between buyers may make it hard to decide whether or not to remove any contingencies
  • buyers agree to take possession (move in) per the time/day agreed to in the purchase agreement (not before)
  • sellers bind themselves to having repairs done in a certain manner (depends on contract and clauses, if promised)

At one time or another, I have seen all of these items not adhered to by the parties who were supposed to make good on their word, and stranger violations that I don’t want to write about here lest I give someone a bad idea. I have seen sellers not move out on time (in some cases, elderly sellers who grossly misjudged the effort required to vacate.)  The failure to do so causes stress and anxiety, and sometimes worse: fear and anger.

Out of Contract: Why the Delay?

Sometimes, when either party is consumed with worry, a kind of emotional paralysis can set in. Luckily that is rare, but I have seen it. Buying and selling a home is extremely stressful, and once in awhile it coincides with other things: the death of a family member, a diagnosis of cancer, a divorce, a relocation that one party doesn’t want. So many things can happen at the same time. You may have heard the saying that “a confused mind says no”. With real estate, the confused mind doesn’t write or accept an offer, or doesn’t move forward as planned.


Congratulations, your home is “sale pending”! What happens next?

Congratulations your home is sale pendingIf you have had your San Jose or Los Gatos home on the market and just gotten it under contract, or sale pending, you may be very excited and happy.  Perhaps you’re a little worried too.  What should you expect now that you’ve got a ratified offer?

Each purchase agreement is a little different from every other one, so this article cannot give you an exact road map.  But let’s look at the big picture and touch on what normally happens to give you an overview.  We’ll do this in a simple list – which is not exhaustive!  Your real estate professional can provide you more info specific to your transaction.

  1. You should get a copy of all the paperwork which you have signed (electronically or paper)
  2. A timeline is usually given to the seller by the listing agent, an assistant, transaction coordinator or someone else involved in the sale (so that you know the major dates)
  3. The buyer’s initial deposit or good faith deposit should go to escrow (most often within 3 business days, most often a check but sometimes by wire)
  4. In Silicon Valley, normally buyers and their agent get disclosures from your listing agent prior to submitting their bid.  If they did not return the signed disclosures with the offer, this should be done not too long after the offer is accepted and certainly within any contingency timeframe for property condition.  The buyer’s agent will need to do a disclosure after walking through the property and carefully noting the condition (this is the AVID or Agent Visual Inspection Disclosure), so expect him or her to need to visit your property and spend some time looking at it carefully.
  5. The buyers may order inspections or have a walk through with the home inspector that you hired prior to putting your property on the market
  6. Assuming that this is a normal sale with some buyer contingencies, there will be a deadline for them to be removed.  Depending on many factors, the buyers may want to renegotiate some aspects of the contract after obtaining inspections or further information on the house, townhouse or condo.
  7. Once all contingencies are removed, you’re in the home stretch!  The next big events are the signoff at the title company and the final walk through, both of which tend to happen within the last week of the escrow period.
  8. Sometimes there is a seller rent back or lease back, and the seller may stay past the close of escrow date if that’s part of the agreement.  Normally, though, the seller must be fully out of the home on the day of closing, and the property should be reasonably clean or “broom clean”.  You’re not expected to wash the carpets and windows, but there should be no debris, the home should be fully empty and vacuumed and generally cleaned up after everything is gone.  Most sellers hire a cleaning crew to do this either the morning of the closing or the day before.

These are general milestones, not a complete list of what to expect. Want more info?  This is covered in more depth in my book, “Get the Best Deal When Selling Your Home in Silicon Valley“.